Title, adoption date, and effectivity
- The Guidelines take effect on the fifteenth (15th) day following its publication in two (2) newspapers of general circulation.
- The adoption date is 25 March 2004.
- No transitory effectivity other than the publication rule is provided.
Purpose and guiding objectives
- The Guidelines ensure the continued quality, reliability, security and affordability of electric power supply.
- The Guidelines promote transparent and reasonable prices of electric service under a regime of free and fair competition, with full public accountability and greater operational and economic efficiency.
- The Guidelines aim to enhance the inflow of private capital and broaden the ownership base in power generation.
- The Guidelines encourage efficient energy use and other demand side management (DSM) modalities.
Coverage and key defined terms
- The Guidelines apply to:
- National Power Corporation (NPC);
- Generation Companies, excluding SPUG;
- National Transmission Corporation (TRANSCO);
- Power Sector Assets and Liabilities Management Corporation (PSALM);
- Department of Energy (DOE);
- Distribution Utilities; and
- Combinations of Distribution Utilities.
- The Guidelines define Captive Market as electricity end-users who do not have the choice of a supplier, as determined by the ERC under Republic Act No. 9136.
- The Guidelines define Contestable Market as electricity end-users who have choice of supplier, as determined by the ERC under Republic Act No. 9136.
- The Guidelines define Retail Rate as the total price paid by end-users consisting of charges for generation, transmission and related ancillary services, distribution, supply, and other related charges for electric service.
- The Guidelines define Transition Supply Contract (TSC) as a contract for electricity supply filed with the ERC by NPC in accordance with Section 67 of Republic Act No. 9136.
- The Guidelines define Regional TSC Availability Record as the record created and updated pursuant to Section 1, Article IV.
- The Guidelines define Generation Rate Adjustment Mechanism (GRAM) as the mechanism allowing periodic adjustment to the Generation Rate reflecting changes in fuel and purchased power costs after ERC review before costs are passed on to customers.
- The Guidelines define Incremental Currency Exchange Rate Adjustment (ICERA) as the mechanism allowing periodic adjustment to FOREX Adjustment/CERA reflecting changes in currency exchange after ERC review before such changes are passed on to customers.
- The Guidelines define Certificate of Compliance (COC) as the document issued by the ERC to a Generation Company pursuant to Republic Act No. 9136, its IRR, and applicable ERC Guidelines.
- The Guidelines define Generation Company as any person or entity authorized by the ERC to operate facilities used in generating electricity.
- The Guidelines define Distribution Utility as any electric cooperative, private corporation, government-owned utility, or existing local government unit with an exclusive franchise to operate a distribution system under its franchise and the Act.
- The Guidelines define Grid as the high backbone system of interconnected transmission lines, substations and related facilities.
- The Guidelines define Region as the three (3) separate Grids: Luzon, Visayas, and Mindanao.
- The Guidelines define Regional Rate Schedule as the schedule of rates, including adjustments and/or indexation formulas, contained within the TSCs offered by NPC for each Region.
- The Guidelines define Supplier as any person licensed by the ERC to sell, broker, market, or aggregate electricity to end-users.
- The Guidelines define Demand Side Management (DSM) as measures undertaken by Distribution Utilities to encourage end-users to manage load properly to achieve efficiency in the utilization of fixed infrastructures.
- The Guidelines define Power Development Program (PDP) as the indicative plan formulated and updated yearly by the DOE in coordination with generation, transmission, and distribution utilities, covering electricity demand management and upgrading/expansion/rehabilitation/repair/maintenance of generation and transmission facilities.
- The Guidelines define PSALM Corporation as the government-owned and controlled corporation created under Section 49 of Republic Act No. 9136 that took ownership of existing NPC generation assets, liabilities, IPP contracts, real estate, and disposable assets.
NPC transition supply contracts process
- NPC must file supplementary agreements for existing executed power supply contracts with Distribution Utilities with the ERC not later than thirty (30) days following the Guidelines’ effectivity.
- The supplementary agreements must include, at minimum, the term of the supplemental agreement, the quantity of capacity and energy contracted, and the regional rate schedule.
- The ERC must act on the supplemental agreements within sixty (60) days from acceptance of the filing.
- NPC must offer new TSCs to all Distribution Utilities in each Region not later than sixty (60) days following the Guidelines’ effectivity, subject to availability and in accordance with Section 4, Article III.
- Distribution Utilities must submit initial requests by filing a letter of intent to enter into a TSC with the Office of the President of NPC and the Office of the President of PSALM not later than thirty (30) days following NPC’s offer.
- Distribution Utilities must simultaneously furnish the ERC copies of all letters of intent.
- A letter of intent must include the hourly schedule of demand and energy during the TSC term, with as much detail or specificity as possible, to the extent available.
- If NPC lacks sufficient capacity and/or energy in a Region to fulfill all requests, each requesting Distribution Utility’s request must be reduced prorata with other requests in that Region.
- NPC must file all duly negotiated and executed TSCs with the ERC for approval; the ERC must grant final approval within ninety (90) days from acceptance of the filing.
Cost recovery limits for TSC period
- For the term of the TSCs, a Distribution Utility’s recovery of generation component costs in its Retail Rate is limited to the applicable Regional TSC Rate.
- The limitation applies only on the condition that an equivalent quality and quantity of electricity remains available to the Distribution Utility under the applicable regional TSC, as demonstrated by the Regional TSC Availability Record.
- In limiting recovery, the applicable Regional TSC rate must be for the same period as the generation capacity and energy arrangement for which the Distribution Utility seeks cost recovery in its Retail Rate.
- Any generation component costs incurred in excess of the applicable TSC Regional Rate, as updated are disallowed by ERC, except for eligible contracts defined under Section 33 of Republic Act No. 9136.
- The primary limitation determined under the TSC term does not apply to amounts of electricity in excess of the electricity available to the Distribution Utility under the applicable Regional TSC, as shown by the latest available updated Regional TSC Availability Record on file with the ERC at the time the Distribution Utility files a rate application.
- When the Distribution Utility seeks to include generation costs for supply above what is available under the applicable Regional TSC, the ERC evaluates appropriateness using technical, environmental, economic, and financial criteria.
- The ERC’s evaluation considers, among others: technology characteristics, diversity of fuel sources, compliance with existing legislation and government policy, costs over multiple demand and fuel/FX/capital cost scenarios, balance of costs and financial risks, and alignment with the DOE’s PDP.
- The ERC evaluation methodology is applied to all new contracts or amendments to existing contracts, and the Distribution Utility must submit all relevant technical, economic and financial data and costs analyses supporting recoverable contractual costs in the Retail Rate.
Regional TSC availability record requirements
- NPC and TRANSCO must jointly file an initial Regional TSC Availability Record for each Region with the ERC not later than thirty (30) days after the Guidelines’ effectivity.
- The initial Regional TSC Availability Record filing must include, for each Region:
- Total NPC generation capacity and energy eligible for TSCs under Section 67 of Republic Act No. 9136, including due to fuel supply, if any, for a time period equivalent to the proposed or executed TSC term;
- All transmission limitations, including maximum transfer capability to each potential buyer in each Region within applicable system reliability and security parameters;
- Generation capacity and energy already taken up by executed TSCs, supplemental agreements to TSCs, and other NPC contractual agreements;
- Generation capacity and energy expected to be taken up by pending TSCs; and
- Generation capacity and energy still available to Distribution Utilities under TSCs.
- The Regional TSC Availability Record filing must include supporting data, documentation, calculations and analyses, operating levels, security constraints, and ancillary services requirements.
- The Regional TSC Availability Record must be certified by the DOE.
- Within six (6) months of the initial filing, and every six (6) months thereafter during the term of the TSCs, NPC and TRANSCO must file updated Regional TSC Availability Records duly certified by the DOE.
Post-TSC period cost recovery and mechanisms
- After the expiration of the term of Regional TSCs, the ERC evaluates the generation component costs proposed for inclusion in a Distribution Utility’s Retail Rates to its Captive Market based on technical, environmental, economic, and financial criteria.
- The ERC’s evaluation after the TSC term uses criteria including: technology characteristics, diversity of fuel sources, compliance with existing legislation and government policy, costs over the arrangement’s term under various scenarios of demand, fuel costs, foreign exchange rates, and capital costs, the balance of costs and financial risks, and the DOE’s PDP.
- The evaluation methodology after the TSC term is applied to all new contracts or amendments to existing contracts, and the Distribution Utility must submit all relevant technical and financial data and costs analyses supporting contractual costs sought for recovery in Retail Rates.
- Distribution Utilities must use GRAM and ICERA, if applicable, as approved by the ERC to ensure full recovery of prudent and reasonable economic costs associated with purchased power serving the Captive Market regardless of the power source.
New bilateral supply contracts and ERC approval
- Distribution Utilities may enter into a new bilateral power supply contract with any Generation Company for electricity from any existing generating facility, or amend or replace an existing power supply contract to supply their Captive Market, subject to limitations of Section 45 of Republic Act No. 9136.
- Prior to including any new bilateral contract costs in Retail Rates, a Distribution Utility must file a rate application with the ERC for approval of inclusion of those costs, and ERC approval is required.
- The rate application for a new bilateral contract with an existing Generation Company must include:
- A statement whether TSC capacity and energy are expected to be available during the relevant contractual period, with supporting documentation, data, and analyses;
- All relevant technical and economic characteristics of the generation capacity;
- All cost analyses related to generation supporting the contract’s proposed pricing provisions;
- Procurement details leading to selection of the Generation Company, including request(s) for proposals, proposals received, tender offers, and similar materials;
- Details on transmission projects or Grid connection projects necessary to complement generation capacity, including parties that will develop and/or own such facilities, relevant costs, and allocation of responsibility for recovery of project costs; and
- Other documents needed by the ERC during evaluation.
- Distribution Utilities may enter into bilateral power supply contracts with any Generation Company for new generation capacity or the development of new generating capacity for their Captive Market, subject to limitations of Section 45 of Republic Act No. 9136.
- Prior to including costs of such new bilateral contracts in Retail Rates, a Distribution Utility must file a rate application with the ERC, obtain ERC approval, and have the applicable Certificate of Compliance (COC) issued.
- The ERC approval process for this rate application shall not exceed six (6) months.
- The rate application for bilateral contracts for new generation capacity must include:
- Consistency/inconsistency statements between proposed generation capacity and the DOE’s PDP, with supporting analyses and forecasts/assessments of available generation capacity and technology mix;
- A statement whether TSC capacity and energy are expected to be available during the relevant contractual period, with supporting documentation, data, and analyses;
- All relevant technical and economic characteristics of the proposed generation capacity;
- All cost analyses related to the proposed generation supporting proposed pricing provisions;
- Procurement details leading to selection of the Generation Company, including request(s) for proposals, proposals received, tender offers, and similar materials;
- Transmission or Grid connection project details to complement the generation capacity, including parties responsible and cost recovery responsibility;
- Load forecast projections consistent with the latest Distribution Development Plan of the Distribution Utility, including variability over the contractual period and an estimation of potential reduction in load supplied due to retail competition, with inconsistencies supported by relevant analyses;
- If the application is filed later than two years after effectivity of the Guidelines, an alternative Demand Side Management (DSM) program for ERC approval, with projected DSM costs and benefits; and
- Other documents needed by the ERC during evaluation.
- Distribution Utilities and Suppliers may enter into bilateral power supply contracts to serve the Contestable Market following open access and retail competition, subject to limitations of Section 45 of Republic Act No. 9136.
- Bilateral contracts to serve the Contestable Market are not subject to ERC approval, but must be filed with ERC pursuant to Section 45 of Republic Act No. 9136.
- Generation costs related to contracts entered by a Distribution Utility to supply the Contestable Market must be separately accounted for and shall not be recovered in Retail Rates for the Captive Market.
Final and separability provisions
- If any part of the Guidelines is declared unconstitutional or invalid, the remaining parts not affected continue in full force and effect.
- The Guidelines’ effectivity is governed by the publication rule: fifteenth (15th) day following publication in two (2) newspapers of general circulation.